Monthly Archives: March 2015

Post navigation

Some of you may recall the George and Ira Gershwin song, They Can’t Take That Away From Me made famous by Fred Astaire and Ginger Rogers in the film, Shall We Dance. A recent amendment to a mechanic’s lien statute will limit general contractors’ ability to take lien rights away from subcontractors. The amendment will nullify provisions in contracts requiring subcontractors to waive their lien right, among other rights, prior to the subcontractor providing the labor, services or materials.

Often times, even before a project gets started, a general contractor or an upper tier subcontractor inserts language into a contract requiring a lower tier subcontractor or materialman to waive its right to file a mechanic’s lien or assert other claims against a property on which services or materials will be provided. Such a lien waiver deprives the lower tier subcontractor or materialman of a powerful weapon should payment for the work or materials provided later become an issue. The General Assembly recently passed Senate Bill 891 making such lien waivers void.

Any right to file or enforce any mechanics’ lien granted hereunder may be waived in whole or in part at any time by any person entitled to such lien, except that a subcontractor, lower-tier subcontractor, or material supplier may not waive or diminish his lien rights, the right to assert payment bond claims, or the right to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s, lower-tier subcontractor’s, or material supplier’s lien rights, right to assert payment bond claims, or right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.

This is good news for subcontractors and materialmen. Construction contracts and mechanic’s liens are a tricky business. If you need to file a memorandum of mechanic’s lien or need to have your contract reviewed, you should contact counsel experienced in this area.

Back in November 2013 we wrote an article asking Does It Matter Who Wins the Race to Create the First 3D Printed Building? We determined that being first didn’t matter nearly as much as the fact that there were a number of firms working on the technology to make 3D printed buildings a reality. Some of the projects we covered were DUS Architects’ canal house in Amsterdam using their KamerMaker 3D printer, Enrico Dini’s D-Shape 3D printer and Behrokh Khoshnevis’ Contour Crafting. At the time it appeared we probably wouldn’t see a functional and usable building until the end of 2014 at the earliest.

Little did we know that about four months later in March 2014, a company out of China, WinSun Decoration Design Engineering, would 3D print 10 single-room buildings in in a span of 24 hours. Each building was roughly 2,153ft2 and cost less than $5,000 each to build. Ten months later, WinSun followed up on that impressive feat by announcing they had built a 3D printed five-story apartment building and an 11,840ft2 villa. The villa reportedly cost $161,000 to build and was completed by an eight-man team in 30 days.

WinSun prints the building components offsite using printers that measure 20 feet tall by 33 feet wide by 132 feet long and uses an “ink” composed of recycled construction waste, fiberglass, concrete, sand and a hardening agent. The building components are printed in layers in a diagonally reinforced pattern for strength. The printed building components are transported and assembled onsite in order to complete the buildings. The company is planning to expand operations by establishing printing facilities in 20 other countries including Saudi Arabia and the United States. In the future, WinSun wants to expand their capabilities in order to build skyscrapers and bridges.

With the news that WinSun is planning to expand its operations to the United States, the question shifts from when will we see the first habitable 3D printed building to what the implications are for the construction industry once this disruptive gains traction. Local and state building codes will probably have to be addressed at some point. Organizations like the American Society for Testing and Materials (ASTM) and the International Organization for Standardization (ISO) will likely determine standards such as test methods and specifications for the 3D building material “ink”. Plants will have to be established to manufacture the “ink” and factories will be needed to build the printers and to print the building components if they aren’t being printed onsite.

We mentioned in our previous article on 3D printed buildings that there would be a tradeoff in jobs. Jobs for traditional construction workers would be lost in favor of positions like 3D printer operators and repair technicians, etc. Obviously this won’t have a major impact on jobs since 3D printed buildings aren’t going to occupy a significant share of the construction market any time soon. It’s way too early to tell if it ever will. Some of the initial applications discussed include affordable, low cost housing for both single-family and multi-family residences as well as a way to provide fast and affordable temporary housing in disaster relief situations.

If you’re not yet using big data and analytics to do your job, you likely will be soon. Surely you’ve heard of big data transforming industries as varied as medicine, advertising, and financial services, and it holds particular potency for the property and casualty insurance space. Big data can simplify your marketing to potential clients, aid underwriting and claims, and ultimately help you retain more clients over the long term.

But as more and more insurance carriers begin to use data to drive their decision-making, they have to be careful about where that data is originating. Too often it comes from error-prone surveys marred by selection bias, or from third-party sources that could be shadowed with misinformation or lack of context. For big data to truly be useful, it has to be relevant and accurate, and many streams of data in use today just don’t fit the bill.

How insurance companies collect and verify their data will determine whether they’re better informed about their clients and basing decisions on a bedrock of truth. Big data is poised to improve the decision-making of an entire insurance organization, from home office employees to customer-facing agents, but only those with relevant and accurate information will reap the rewards.

Realizing data’s potential

Pinpointing prospects no longer involves a phone book and uncanny stamina. Using big data tools, agents can spot pockets of businesses that might qualify for insurance. For example, if your company has great prices for florists and agents are interested in writing Commercial Auto, you can locate the florists that are likely to have multiple vehicles by using sales as a metric, with more sales being an indicator of more vehicles. Once you know where those florists are agents can start marketing. To write Workers Comp, they can look for florists with a high payroll (i.e., more employees).

Using the same example, underwriters can pull up the financial metrics of a particular florist and benchmark it against the floral peer group as a whole. Underwriters no longer have to apply a discretionary factor to the price of a policy based on a gut feeling about the owner, sense of how the business is run, or one of the few known factors about the account, such as whether there is a safety program in Workers Comp. Now they can make a decision about the discretionary factor using more foundational information.

Realizing data’s pitfalls

All of these benefits assume, however, that the data that insurance agents use to drive sales has been vetted and is accurate. Sometimes that’s hard to judge, but often the source of the data tells you all you need to know about whether it’s a foundation for decision-making or a misleading fraction of the truth.

Many firms, inundated by the volume, variety, and velocity of incoming data, can overlook its veracity. True data veracity depends on a technological foundation, one that taps reliable sources, fills out a complete picture, and establishes benchmarks that put information in context. Surveys and third-party data often fall short on all three counts and can create more problems than they solve.

As more property and casualty insurers look to tap the power of big data, they should do so with an eye on veracity. Knowing where data comes from, what biases might pepper the information, and the full context behind that information, insurers can separate the questionable data from the truth. Knowing that difference, and tapping the right data, will be the key to big data success.

As I posted recently, the Virginia General Assembly has passed, and I can see no reason why the governor won’t sign, a bill that would essentially invalidate preemptive contractual waivers of lien rights as they relate to subcontractors and material suppliers. It does not apply to General Contractors, but it is a step in what many (including those attorneys that represent subcontractors and suppliers) believe is the right direction.

Of course, as soon as I posted last week, my friend and colleague Scott Wolfe (@scottwolfejr) commented on that post and then gave his two cents worth at his Zlien blog. The gist of the comments here at Musings and the post over at his blog was essentially that these contractual provisions were inherently unfair and therefore should be abolished because of both a relative disparity in leverage between the Owner or GC and the Subcontractor when it comes to negotiations and the fact that subcontractors often don’t read their contracts or discuss them with a construction attorney prior to signing them. I hear this first of his arguments often when I am reviewing a contract after the fact and a client or potential client acts surprised that a provision will be enforced and the courts of the Commonwealth of Virginia will actually enforce them. As to Scott’s second reason, I have always warned here at Musings that you should read your contracts carefully because they will be the law of your business relationship in the future.

The first of his two points is more interesting and in some ways more easily supported. However, where we are speaking of contracts between businesses where both sides are bound by the terms of the contract, it begs the question of whether in seeking to make contracts more “fair” we could add a layer of uncertainty that could cause more problems than it solves. Do we really want courts stepping in after the fact to renegotiate the terms of a deal that was struck months or possibly years before because one judge believes that the deal was too one sided? Do we really need such “Monday morning quarterbacking?” Is one person’s idea of “fair” better than another’s when both parties to the contract had the full ability to read, negotiate and possibly reject the deal long ago? Personally, I think that the answer to these questions is, in all but the most egregious cases or where the legislatures have stepped in adding certainty (whether to the good or bad), “No.”

A question that must be asked is are all subcontractors or suppliers so lacking in negotiating leverage that they would essentially sign anything to get the work? It is my experience that this is only partially true. While the leverage seems to flow downhill from the Owner to General Contractor to Subcontractor, the tide often turns at the supplier level. Suppliers often have credit agreements with personal guarantees that give them more leverage from a purely monetary standpoint than do the subcontractors.

Furthermore, those that would look to renegotiate a deal after the fact will often forget that GCs depend on good subcontractors to keep them afloat. Without good subcontractors doing the work for general contractors that do not self perform much work, these general contractors will not do quality and timely work and will lose business. In short, subcontractors likely have more leverage than they think, particularly where they carefully read the contracts and negotiate certain particularly onerous terms. If a construction professional does not take the time to read and understand a contract, should it be the job of the courts to protect that company from itself?

Of course both sides of a contract negotiation will try and tilt the contract in their favor. This can often lead to provisions that are clearly slanted one way or the other if those provisions are not hammered “flat” prior to the project’s beginning. These provisions can look “unfair” to the party that may not be able to collect right away because of a “pay if paid” clause or, at least until later this year, may have waived its lien rights. Such provisions, if allowed to stand during negotiations, do make collection difficult, particularly in a tough economy.

However, at least in Virginia, both sides can make their own rules for the construction project by contract and those rules will be applied. This fact can be a great thing because construction professionals in Virginia (particularly those that get an experienced construction attorney involved early in the process) know that the rules will be applied as written and that their deal will be honored. I would hate to sacrifice this certainty of dealing on the alter of after the fact renegotiation of the contract in the name of “fairness.”

I expect that many readers (this means you Scott) will have opinions on this matter and I fully encourage any responses as this debate has at least two sides and the opinions on all sides are not without some logic, so have at it!

Resolving business disputes before filing a lawsuit is efficient, cost effective – and sometimes dangerous. At least that’s what an architect learned when he tried to settle a pay dispute with the owner of a luxury condominium development. His efforts nearly cost him $900,000.

TWB Architects, Inc. was retained by Progress Capital Partners, LLC [1] to provide architectural and design services for the The Braxton, a mid-rise condominium project. TWB earned almost $900,000 in fees, but Progress Capital was unable to pay. Rather than file a mechanic’s lien (a method for ensuring payment unique to the construction industry), TWB’s owner agreed to accept a penthouse at The Braxton in lieu of TWB’s fees.

Despite their new agreement, The Braxton could not deed the penthouse because it was encumbered by a lender’s lien. To make matters worse, The Braxton was forced into receivership because it was unable to pay its debts, and all condominium units, including TWB’s penthouse, were transferred to the receiver.

Because the new agreement was worthless, TWB attempted to enforce the old agreement. It filed mechanic’s lien against The Braxton and a lawsuit to enforce the lien. Though there was no dispute TWB did not get paid, the court dismissed TWB’s suit. The court found that the new agreement canceled the old agreement along with TWB’s right to collect under the old agreement. TWB’s only remedy, the court found, was under the new agreement which had no value.

The legal basis for dismissing TWB’s lawsuit was “novation.” A novation is a contract that substitutes a new obligation for an old one, and extinguishes the old obligation. In TWB’s case, the court found the new agreement to deed a penthouse to TWB extinguished the old agreement to pay money for TWB’s services.

Novation can be an unintended, deadly result when a business tries to resolve a dispute before litigation. As in the TWB case, a party may unknowingly waive the benefits or rights under an old agreement even if the other side does not perform under the new agreement.

Novation occurs when the parties intend for the new agreement to cancel a prior obligation. The parties’ intent be expressed, or implied from the facts and circumstances surrounding the new agreement. But that intent must be clear and definite before a court can find there was a novation.

Fortunately for TWB, the Court of Appeals found that the parties did not intend to cancel Progress Capital’s obligation to pay TWB’s fees. That intent was not expressed in the new agreement, and communications between the parties suggested TWB would still be paid under the old agreement if it did not receive the penthouse. As a result, the Court of Appeals held the new agreement was not a novation, and TWB could enforce its right to payment under the old agreement.

The conflicting rulings in TWB turned on each court’s interpretation of the events that occurred before and after the new agreement was signed. The courts had to rely on the surrounding facts and circumstances because the parties’ intent was not expressed in the new agreement. The Court of Appeals could have just as easily agreed with the lower court and determined the facts showed there was a novation, leaving TWB with no ability to collect its fees.

An effective way to avoid disputes about novation, resulting in litigation the parties intended to avoid by settling their dispute, is to clearly express the parties’ intention in the new agreement. If the parties intend for the new agreement to cancel the old agreement, the new agreement should state that. If the parties wish to preserve their rights and obligations under the old agreement, they should make that clear in the new agreement.

Disclaimer

This Blog/Website is made available by the expert or expert witness firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the Blog/Webwite publisher. The Blog/Webwite should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.